If you have been following the market over the last year, you have noticed the glaring dichotomy between the rebound in corporate earnings and continued sluggishness in the US economy. It seems almost impossible for companies to be doing so well when there is 10% unemployment, a housing depression, and debt deleveraging in all aspects of the economy. Yet with all of these headwinds, corporate earnings are strong and growing. Why?
S&P 500 earnings are no longer as reliant as they once were on US profits. In fact, 30% of total sales are coming from outside of the US, and in some instances (top 50 largest companies in the S&P 500) the number is around 50%. So in many respects S&P earnings are no longer a great gauge of how the US economy is doing. It is more of an indicator of how the world economy is faring. This situation is masking how truly weak the US is, while revealing how well emerging economies and Asia are doing. As we have discussed on this blog before, through economic data such as railroad carloadings in the US and port volume in Asia, the US economy never recovered from the financial crisis. At best, we can say the US economy stabilized at a permanently lower level of economic activity. However, the crisis proved to translate into only a minor panic in Asia (ex-Japan); other emerging markets almost instantly recovered and never looked back. You can clearly see this in the GDP numbers from Brazil, China, Taiwan, Singapore.
S&P 500 earnings are no longer as reliant as they once were on US profits. In fact, 30% of total sales are coming from outside of the US, and in some instances (top 50 largest companies in the S&P 500) the number is around 50%. So in many respects S&P earnings are no longer a great gauge of how the US economy is doing. It is more of an indicator of how the world economy is faring. This situation is masking how truly weak the US is, while revealing how well emerging economies and Asia are doing. As we have discussed on this blog before, through economic data such as railroad carloadings in the US and port volume in Asia, the US economy never recovered from the financial crisis. At best, we can say the US economy stabilized at a permanently lower level of economic activity. However, the crisis proved to translate into only a minor panic in Asia (ex-Japan); other emerging markets almost instantly recovered and never looked back. You can clearly see this in the GDP numbers from Brazil, China, Taiwan, Singapore.
